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Subscription Growth Drives Up Appian's Top Line

Management expects more of the same in 2019.

Appian(NASDAQ:APPN) reported its fourth-quarter and full-year results on Thursday.

At first glance, the company's total reported revenue growth of 19% might not look all that impressive, since Appian is supposed to be a high-growth software company. However, a sizable portion of the company's revenue is earned from low-margin professional services fees, which are lumpy from quarter to quarter. Subscription revenue, which is recurring in nature and produces high margins, is a much better number to watch. In fact, subscription revenue grew 44% last quarter and is much more indicative of Appian's true growth rate.

What happened with Appian this quarter?

Subscription revenue growth accelerated sequentially to 44% during the quarter and came in at $33.8 million. This figure beat guidance. However, CFO Mark Lynch noted that this included a one-time accelerated payment and that the underlying growth rate was about 40%.

Non-GAAP operating loss and non-GAAP EPS both came in ahead of management's forecast.

Appian's cash balance at year-end was $94.9 million.

Here's a look back at the headline numbers from 2018:

Subscription revenue grew by 40% to $115.7 million.

Total revenue rose 28% to $226.7 million.

International sales were 29% of total revenue.

Non-GAAP net loss was $33.4 million, or $0.54 per share.

Cash consumption was $38.3 million in 2018

Image source: Getty Images.

What management had to say

Commenting on the year, founder and CEO Matt Calkins stated, "Appian is the first and only company to go public as a low-code vendor so far. Our growth in 2018 demonstrates our leadership in the low-code industry."

We ended the year with 378 subscription customers, adding 87 net new customers during the year. We ended 2018 with 436 total customers compared to 356 at the end of 2017. During 2018, the number of customers with [annual recurring revenue] greater than $1 million increased by 58% over 2017, demonstrating the deep value our customers get from Appian.

Looking forward

Management believes that subscription revenue will continue to be the primary factor driving the company's results.

Here's its guidance for the upcoming quarter:

Metric

Q1 2019 Guidance Range

Implied Change

Subscription revenue

$33.3 million to $33.6 million

31% to 32%

Total revenue

$59.5 million to $59.8 million

15% to 16%

Non-GAAP operating loss

($10.5 million) to ($10.0 million)

N/A

Non-GAAP EPS

($0.17) to ($0.16)

N/A

Data source: Appian.

The company also provided investors with a peek at what it expects for the full year:

Metric

Guidance Range

Implied Change

Subscription revenue

$148 million to $150 million

28% to 30%

Total revenue

$258.5 million to $262.5 million

14% to 16%

Non-GAAP operating loss

($29.5 million) to ($27.5 million)

N/A

Non-GAAP EPS

($0.46) to ($0.42)

N/A

Data source: Appian.

CFO Lynch pointed out that Appian has chosen to delay adoption of the new accounting standard known as ASC 606 until the end of 2019. Once the change is made, it will impact a portion of the company's revenue and expenses. According to management, the company will provide visibility into the financial impact of the changes throughout 2019.

Author

Brian Feroldi has been covering the healthcare and technology industries for the Motley Fool since 2015. Brian's investing goal is to find the highest quality companies that he can find, buy them, and then to sit back and let compounding work its magic. See all of his articles here and make sure you follow him on Twitter.
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